It is a great thing to have cheap energy, and i suspect that fracking will supply first the US, and later the world, with abundant cheap (and clean) gas.
It is difficult to export gas (which is why the Australian gas investments are mega-projects) so at this point US gas prices have collapsed, while Asian Gas prices (our customers) remain higher. Because gas is difficult to export, the immediate threat is not to Australian Gas exports and investment projects – it is to our coal exports / investments.
The collapse in US gas prices has led to substitution away from oil and coal – both of which are much easier to export. Displaced US coal is being exported, and this is lowering global coal prices. My expectation is that displaced US coal will continue to depress global coal prices, and that the lower price will diminish the incentive to invest in additional Australian coal production.
We get an update from the ABS on investment intentions today – I suspect the period where capex surprises with strength is now over. My guess is that plans will be revised down, and that some of the so-called ‘baked in’ projects will never make it ‘into the oven’.
Without a mining boom, we never would have raised rates – like almost everyone else – so the investment unwind ought to mean a return to 5% mortgage rates.
How low does the RBA’s overnight cash rate have to go to get mortgage rates down ~5%? That depends on funding markets. Right now my guess is that you would need a 1% cash rate.